The US Senate approved the tax reform, but Republicans’ win did not make a big impression on the Dollar. In US stock markets, investors also took profits what indicates the need for new bullish drivers to propel the rally of equity prices further.
The largest revision of the tax code for the last thirty years became major accomplishment Republican Party without the support of the Democrats, even with their fierce opposition, but due to the vast of scepticism, it is difficult to assess the consequences of the reform. The Senate passed the bill by 51 votes to 48, but due to a small procedural inconsistency, the House of Representatives will once again work the reform by voting on Wednesday, which is almost guaranteed to happen.
Investors sold the Dollar on news from the Senate, along with liquidating positions in the US stock market. The Dollar index returned to 93.00 after a short-term spike in purchases, S&P 500 lost 0.32%, Dow Jones 0.15%, NASDAQ technology index sank by 0.5%.
Budget-financed tax cuts are expected to increase the US public debt by 1.5 Trillion Dollars for the next 10 years. The reform finds the economy at a moment of substantial recovery, with unemployment close to the lowest level after the crisis, high level of consumer expectations and economic sentiments. For the FED, this can be a real test, so an unexpected surge in economic activity and a rebound in consumer inflation can make the FED act in a hurry which is fraught with volatility. However, a small but controlled overheating in the labour market will be able to raise the growth rate of wages to a favourable level.
The Dollar may experience a greater decline in early 2018, but for a short while, as pressure on the inflation front due to weak currency will eventually force the FED to tighten the policy at a faster pace and again make bets popular for the long-term growth of the US currency. Therefore, by the middle and the end of next year, the Dollar is likely to trade much higher than current values.